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New Jersey Energy Tax Credit


New Jersey Energy Tax Credit document sample

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									              Rhode Island Greenhouse Gas Process
           Phase II -- Buildings & Facilities Working Group
                       Initial Program Document


Phase I of the R.I. GHG process identified tax credits to promote energy
efficiency as one of the priority options to further develop in the phase II work of
the Buildings & Facilities Working Group. At the initial Working Group meeting in
November the consensus of the group was to focus on a sales tax credit, as
opposed to a credit against state income tax or against property taxes. This
paper provides an overview of potential sales tax approaches. The appendices
provide a description of the current Rhode Island sales tax, and a summary of
existing energy-related tax credits in R.I., and a synopsis of energy-related sales
tax credits in other states.

Issues in Designing a Sales Tax Credit
The major step in designing a sales tax credit is to determine the kinds of
purchases that would be exempted from taxation. It is important to identify
equipment that can clearly be delineated by both consumers and vendors.

The purpose of a tax credit program is to spur additional purchases of qualifying
products. Rhode Island’s sales tax is seven percent on tangible personal
property, as described in Appendix 1. For a product that is modest in cost and
usually not bought in volume --for example, “Energy Star” rated air conditioners,
clothes washers, dishwashers, or refrigerators-- a full exemption from the tax
may be needed in order to substantially influence consumer behavior. For more
costly items, such as an entire energy-efficient manufactured (mobile) home, a
limited sales tax exemption might be sufficient to affect the market.

Of course, a sales tax credit will reduce the re venue received by the state.
Therefore the likeliest time to introduce a sales tax credit is when overall state
revenues are robust, or when other tax changes are being made which could
offset the revenue impact of the tax credit. Some existing state tax c redits are
time-limited. Others are limited to a maximum cumulative impact on state
Appendix 3 summarizes existing energy-related sales tax credits. Several of
these are not energy efficiency. However, since it is the structure of the program
that is of interest, these other credits are relevant to the issues at hand.

Energy Star Products

Energy Star is a joint US EPA/DOE program that has worked with manufacturers
and distributors to develop standards and labeling for a wide range of energy-
efficient products. It is possible to use explicit efficiency ratings of the efficiency
of equipment to construct a tax credit program. Indeed, Energy Star standards
have not yet been developed for important non-residential products, such as
electric motors. However, Energy Star products do provide a possible basis for a
sales tax credit program. Therefore, the current coverage of Energy Star is
indicated in the below table.

              Residential                                  Non-residential
Copiers and fax machines
Refrigerators & freezers
Water coolers
CFLs and other lighting                        Exit signs and traffic lights
Air conditioners                               Air conditioners (light commercial)
Ceiling fans & ventilating fans                Roof products to increase solar
Heat pumps                                     Heat pumps (light commercial)
Programmable thermostats                       Commercial and industrial low-voltage
                                               dry-type transformers
Clothes washers                                Commercial clothes washers
Boilers & furnaces
TV/VCR/DVD and audio equipment
Cordless phones/answering machines
Dish washers
New & existing homes, including
manufactured homes

State Tax Credit Program                   2         First Draft, D. Nichols, Jan. 16, 2003
                                  Appendix 1
                           RHODE ISLAND SALES TAX

Rhode Island has a sales and use tax of 7% on tangible personal property. There
are a number of exemptions, but they do not affect equipment that uses energy.
The principal consumer exemptions are groceries, clothing, prescriptions drugs,
and gasoline (the last has its separate tax). Professional and occupational
services (doctors, lawyers, accountants, barbers, dry cleaners, etc.) are not

Business and industry are taxed on their utility bills, but others are exempted
from sales tax on those items. Business is not taxed on machinery and
equipment used directly in the production process, as part of a manufactured
product for resale, or used to manufacture software, but it is taxed on equipment
that is not used in production. Sales of approved pollution control equipment are
not taxed. Sales of computers to firms that will use them on research and
development in R.I. are also exempt from taxation, but other comp uters and
software are subject to the tax.

Sales Tax Credit Program                3       First Draft, D. Nichols, Jan. 16, 2003
                                 Appendix 2

Rhode Island’s existing tax credits apply to renewable energy, but are of interest
for considering tax credits for efficiency. There are three programs. 1

      1. Personal renewable energy tax credit. Eligible technologies include
         photovoltaic cell systems, solar hot water and space heating systems, and
         wind systems. The credit declines over time:
               25% of the cost for systems claimed in year 2000,
               20% in 2001,
               15% in 2002,
               10% in 2003,
               5% in 2004.

      2. Sales tax refund. The division of taxation offers refunds for qualifying
         renewable energy systems. Eligible technologies include photovoltaic cell
         systems, solar hot water, solar space heating, and wind systems. Expires
         December, 2004.

      3. Property tax provision. Rhode Island law states that renewable energy
         systems cannot be assessed at more than the value of a conventional
         heating, hot water, or other energy production system. Qualifying
         technologies include photovoltaic cell systems, solar hot water systems,
         and active solar space heating system. Expires December, 2004.

    Source: DSIRE data base.

Sales Tax Credit Program                  4       First Draft, D. Nichols, Jan. 16, 2003
                                                             Appendix 3


    State       Tax Rate           Incentive              Tax-exempt Items             Eligibility        Comments                Legislation
Maryland      5%. Applies      Sales tax            Cert ain ENE RGY S TAR         For purchases     Sales tax legislation   Maryland Clean
              to all           exemption for           appliances (clothes          between July      designated as           Energy Incentive
              purchases.       qualified energy        washers, refrigerators and   1, 2000 and       substitute for          Act (HB 20), May
                               efficiency              room air conditioners)       December 31,      discontinued utility    1, 2001.
                               purchases            High-efficiency central        2004              DSM funding.
                                                       heating and cooling
                                                    Purchase of new fuel cells
                                                    Electric and hybrid vehicles
New Jersey    6%. Applies      Sales tax           All natural gas and utility      Facilities must   This law imposed        Energy Reform
              to receipts      exemption for       service used for on-site         register with     the NJ sales tax on     Tax Act (P.L.
              from every       cogeneration        cogeneration of electricity      the NJ Division   natural gas and         1997, C. 162),
              retail sale of                                                        of Taxation to    electricity and made    1998
              tangible                                                              get an            an exception for
              personal                                                              exemption         cogeneration.
              property and                                                          certificate
              of certain
              clothing, Rx
              drugs exempt

Sales Tax Credit Program                       5      First Draft, D. Nichols, Jan. 16, 2003
Arizona       5.6% (as of        1. Sales tax        Alternative-fueled vehicles,                        There was no            Alternative Fuels
              June 1, 2001.      credit, maximum     credit depending on emissions                       specific alternative    Tax Credit
              Prior to that it   exemption of        rating of vehicle                                   fuel use mandate,       Program, (SB
              was 5%)            $5000.                                                                  creating loophole for   1269 and HB
                                                                                                         flex-fuel vehicles.     2696), 1999
                                                                                                         Program was so          (suspended)
                                                                                                         popular that too
                                                                                                         many vehicles were
                                                                                                         purchased for the
                                                                                                         limited fueling
                                 2. Sales tax        Solar devices                                                               Hous e Bill 2433,
                                 exemption                                                                                       1991.

Minnesot a    6.5%               1. Sales tax           Fluorescent lamps             For purchases     Appliances based        Omnibus Tax Bill,
                                 exemption for          Electric heaters              made between      on current market       2001
                                 purchase of            Gas water heaters             August 1, 2001    penetration, peak       Minnesot a S.F.
                                 certain efficient
                                                        Natural gas furnaces
                                                                                       and July 31,
                                                                                                         time energy use and
                                                                                                         lost revenues
                                                                                                                                 3396 and HF 35
                                 2. Sales tax          Wind power                     Effective for                             Minnesot a Statute
                                 exemption             Solar power                    purchases,                                297A.25, 1998
                                                       Hydro power                    sales, storage,
                                                       Construction materials and     use, or
                                                       supplies used in building or    consumption
                                                       modifying a district heating    occurring after
                                                       and cooling cogeneration        May 31, 1997
                                                       facility that uses wood waste
                                                       as a primary fuel source and
                                                       that meets the statutory
                                                       biomass mandate.
New York      4%. Applies         Sales tax           Additional cost of an AFV       AVFs are          Current exemption       NY Alternative
              to receipts         exemption            (above the cost of a similar    defined as        for hybrids is $3000    Fuel Vehicle Tax

Sales Tax Credit Program                         6       First Draft, D. Nichols, Jan. 16, 2003
              from every             gasoline powered vehicle)       vehicles fueled   unless otherwise       Incentive, (New
              retail sale of        Parts and labor required to     by alcohol,       specified by the       York Tax Law
              tangible               convert a conventional          natural gas,      manufacturer. It is    Section 1115) first
              personal               vehicle to an AFV               propane,          retroactive to 2000.   implemented
              property and          Commercial AFV refueling        hydrogen,         Exemption for          March 1, 1998.
              of certain             property, including electric    electric and      qualified HEVs is      Simplified in June,
              services.              vehicle recharging              dual-fuel.        $2000.                 2002 (Assembly
              Clothing and           equipment and installation of                                            Bill 11749 and
              footwear               such.                                                                    Senate Bill 7757)
              exempt                                                                                          Expires on

Sales Tax Credit Program       7      First Draft, D. Nichols, Jan. 16, 2003

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